top Ad Widget

**frogger** · 01-01-2015, 03:12 PM

To be brutally honest here, it sounds like you want to have your cake and to eat it too. BK is a matter of honesty, totally honesty. You have made several statements that concern me, including one that 600.00 is not a lot of money.

Perhaps you should re-examine your motives and ask yourself if you're looking to game the system or if you really need to file bankruptcy.

As to your financial life with the trustee, you need to understand that you and the trustee are married for the term of your bk.

Think about things............

**kornellred** · 01-01-2015, 03:21 PM

The trustee controls your entire estate during a Chapter 13 bankruptcy. Chapter 13 bankruptcy only eliminates debt that you cannot afford to pay. All of your disposable monthly income will be used to pay existing debt. The only money you will be allowed to keep will be money for essentials. It sounds like you want to use Chapter 13 to reduce your expenses while keeping your assets. Maybe it is the way your phrased your posting, but your best bet is to consult a bankruptcy attorney - he or she will tell you what is possible in your situation.

**despritfreya** · 01-01-2015, 03:22 PM

Welcome to bkforum and thank you for posting. I want to first state that you need to consult with and hire a good bk attny. You are not a “cookie cutter” case and the information you may or may not be getting off the Internet may or may not be correct, complete or even apply. You need to explore with a qualified attny if you would be better served by a Chapter 11. I can tell you that if you came to my office we would seriously explore staying away from a Chapter 13. As to your comments/questions. . .

I've heard about "cramdown" which reduces the mortgage balance of investment property to the current market value. In my case, the mortgage balance of Rental1 and Rental2 would be reduced to around $35K and $60K respectively.

I assume you understand that in a Chapter 13 the crammed down value must be paid in equal monthly installments over the life of the plan (no more than 60 months). If you can afford this and otherwise qualify, the 13 may be better than the 11 since creditors in a 13 do not get to vote or elect to be treated as fully secured. Further, in a 13 you do not have to deal with the “absolute priority rule” which may or may not apply in an individual Chapter 11 filed in your district.

I also assume you understand that in many jurisdictions, the unsecured portion of all cram downs are used to determine if you are over (or under) the unsecured debt limits of a Chapter 13. The unsecured debt limit is $383,175.00. If, in your jurisdiction, the crammed down value is not used to calculate the unsecured debt, you will not qualify for a 13 since you will be over the secured debt limit of $1,149,525.00.

how much involvement would the trustee be in my financial life?

A lot since you are not a typical wage earner. The Trustee will require the filing of monthly operating reports that list the rent rolls including all associated expenses. The net left over will be used to fund payment to your creditors. If the properties are not either break-even or income producing they are not necessary for an effective reorganization and the Trustee could demand their surrender or require you to up the anti to the unsecured creditors.

I've also heard that if my income changes in the future, the original plan payment would be increased. . . If the original plan payment increases, it would defeat the purpose of filing Chapter13 to cramdown on Rental1 and Rental2. Am I right?

Possibly yes, you are correct.

Again, please find a very good bk attny. Do not even think about filing this type of case pro se.

Des.

**kornellred** · 01-01-2015, 06:49 PM

PeterPan - please ignore my response above and accept my apologies. I should know better than to comment on situations where I am entirely clueless. My bad.

**PeterPan** · 01-01-2015, 07:22 PM

Thank you everyone for responding to my questions.

Frogger, sorry if I sound like trying to game the system. I'm clueless about this bankruptcy thing. I understand that many bankruptcy filers are broke. However I've heard of a number of people who aren't broke but file bankruptcy to protect his/her interests. I guess I would be in that category. Being not able to borrow money until discharge is a huge blow to my financial plan. This is not something I take lightly... Sorry for my statement "$600 is not a lot of money". $6000 is a lot of money for me, but it's just a pocket change for another famous bankruptcy filer named Donald Trump. I think the feeling of a lot or a little is really relative... Cash flow is the life blood in any business. Something has to be done to those two problematic rentals. Otherwise it would become a bigger problem in the future.

kornellred, yes you're correct. I'm considering sacrificing my future ability to borrow and growth for the sake of level the playing field in the rental business. Other landlords who recently bought properties in the same area only paid about 25% of what I paid during the boom time. I couldn't match their rent. The rapidly growing expense only intensifies the problem.

despritfreya, thank you for your long and thoughtful reply. You wrote "the crammed down value must be paid in equal monthly installments over the life of the plan (no more than 60 months)". If I only need to pay the crammed down value of Rental1 and Rental2 while leaving other creditor notes intact, then yes I could afford to do it. However if all debts have to be restructured and paid off in 60 months, I would not have enough financial resources to handle that. Which one is true? Do I only need to do the 60 month payment plan for the crammed down debts, or 60 month for all debts?

I believe that Chapter11 is for corporate. Rental1 and Rental2 mortgage are personally guaranteed. My secured debt is under 1MM. The crammed down portion that is going to be converted to unsecured debt would be under $383K. It should be around $250K. Therefore I should qualify for Chapter13. I plan to leave other debts intact and keep paying the debt service as agreed.

"The Trustee will require the filing of monthly operating reports", wow! That's a surprised to me. My commercial lender only requires me to submit operating report once a year. Trustee requires monthly? Really? ... Des, you mentioned that I should try to stay away from Chapter13. Which path do you think would be a better option? Based on my limited knowledge, here are the options that I eliminated:
(1) Short sale --> The market value is far lower than the loan balance. Lender would never allowed it.
(2) Foreclosure --> This option and option #1 could create the scary deficiency judgement. Sadly I have assets for them to sue.
(3) Deed in lieu --> I wouldn't mind going with this option, but I've heard that lenders have no incentive to do it.
(4) HAMP --> I have no financial hardship to qualify for this one

Thank you all three of you again,
Peter

**dmc-2008** · 01-01-2015, 08:41 PM

Sounds like the rentals are a major issue, i think you could just ride it out though. ESP if you don't have any debt, you could always float them until the market comes back and it is.

When you file bk you are in bed with the trustee for 5 long a** years. Reading between the lines here, I don't think it a lifestyle you would enjoy. But yeah, D trump did but I doubt it was a working mans 13!

Just maybe sell one take a loss and carry the others? Good luck

**dmc-2008** · 01-01-2015, 08:43 PM

Btw some require tax forms yearly as well as take any refund. And if you make over a certain amt you have to tell them.

**despritfreya** · 01-01-2015, 09:13 PM

Do I only need to do the 60 month payment plan for the crammed down debts, or 60 month for all debts?

You are required to pay your “disposable income” for 60 months. If your situation requires you to pay more than your “disposable income” (a defined term under the bk code) then your Plan payment will be higher. No way for me to tell you what must be paid since I do not know your exact situation. For example. . . I do not know if you own any other non exempt property. I do not know if you owe taxes. There are many, many factors that go into determining what you must pay both to secured and unsecured creditors.

I believe that Chapter11 is for corporate. Rental1 and Rental2 mortgage are personally guaranteed.

And this is the perfect example as to why you need a qualified attorney. 1) Chapter 11 is for both entities and people. 2) If the real property is not in your name (and please DO NOT EVEN THINK about transferring title at this time WITHOUT specific legal advice to do so), what makes you think you can file a bk and include the property as “property of the estate”? A personal guarantee of a debt that is secured by a corporate asset does not make the obligation “secured” for the purpose of a bk filed by the guarantor.

Which path do you think would be a better option?

I cannot answer this as there are too many variables. You need to sit down and discuss your specifics with an attny in your local area.

Peter, the problem is that you are looking for answers that you cannot get from this limited forum. We can give you ideas but you have a potentially complicated bk. Reading info on the Internet is not a bad thing but it is no substitute for good legal advice. Consultations are usually free and since you do not mention that you have spoken to one or more attnys I am strongly suggesting that you start setting up appointments.

Des.

**despritfreya** · 01-02-2015, 06:33 AM

I plan to leave other debts intact and keep paying the debt service as agreed.

Peter,

I just picked up on the above comment. You have a misconception of bankruptcy. You do not get to pick and choose which debt is included in a plan of reorganization be it through a Chapter 11 or a Chapter 13. ALL debt is part of the bk.

Your plan of reorganization will provide for payment as required under the bk code. You cannot treat similar type creditors in a dissimilar fashion. For example, you cannot pay the Amex debt in full if you are only going to pay Discover 10%. It is all or nothing. In other words, you cannot gerrymander how you treat each class of creditors. You cannot pay a general unsecured creditor a higher percentage than another general unsecured creditor unless you can justify such treatment. Justification is not “I want to keep my credit cards but do not want to pay the unsecured portion of a crammed down creditor”.

Des.

**PeterPan** · 01-02-2015, 08:33 AM

DMC-2008, thanks for the idea of selling one and keeping one. I wish I could do it. Sadly both problematic rentals are deeply underwater. Selling them requires writing a huge check for the difference between loan balance and sold price. That huge check is enough to buy two/three of the same sold property in the same area free and clear. It would not make more business sense to sell.

despritfreya, thank you for another thoughtful and informative reply. If all debts have to be treated the same way, then my house would probably have to be included in the 5 year payment plan. Ouch! It would be extremely difficult (if not impossible) to try to pay off my house in 5 years without cramdown (which is not allowed because it's a primary resident property and not underwater). Please correct me if I'm wrong, I think Rental3 could be excluded because I've never own it. It was owned and titled under corporate. I simply control the corporate and personally guaranteed the debt.

I do not have any other debts (tax, student, credit card, personal, etc). All debts that I listed in the first post is it... You're right. I should start looking for competent attorneys to talk to this in details and see if other better options are available. Thank you for all your reply so far. I appreciate your knowledge and time.

**LadyInTheRed** · 01-02-2015, 09:37 AM

Originally posted by PeterPan View Post

If all debts have to be treated the same way, then my house would probably have to be included in the 5 year payment plan. Ouch! It would be extremely difficult (if not impossible) to try to pay off my house in 5 years without cramdown (which is not allowed because it's a primary resident property and not underwater). Please correct me if I'm wrong, I think Rental3 could be excluded because I've never own it. It was owned and titled under corporate. I simply control the corporate and personally guaranteed the debt.

I do not have any other debts (tax, student, credit card, personal, etc). All debts that I listed in the first post is it... You're right. I should start looking for competent attorneys to talk to this in details and see if other better options are available. Thank you for all your reply so far. I appreciate your knowledge and time.

All similar debts are treated the same way.

Originally posted by despritfreya View Post

Your plan of reorganization will provide for payment as required under the bk code. You cannot treat similar type creditors in a dissimilar fashion.

The secured portion of a crammed down debt must be paid within the 60 months. This is not true of a home mortgage which is not crammed down. If you are behind on your home mortgage when you file a Chap 13, you would have to pay the arrears during your plan. Other than that, the home mortgage payments would continue as normal, during and after the Chap 13.

So, it sounds to me like the corporation owns all 3 rentals. Is that true? Your personal guaranty on corporate debts will be discharged. The corporation's liability for the debt would not change. The corporation's debt cannot be crammed down in your personal bankruptcy. You should find out how the mortgages will be affected by the bankruptcy of the guarantor. It is possible they would accelerate the loan. Have you considered dissolving the corporation or having the corporation file BK?

While we can give you general information and thoughts, your situation is definitely too complicated for getting good answers on the internet. Consult with more than one attorney with experience in Chapters 13 and 11.

**PeterPan** · 01-02-2015, 12:04 PM

Hi LadyInTheRed, thanks for answering my questions. I'm thrill to learn that my house mortgage doesn't have to be in the 60 month plan. That's a big relieve. :-) Here are the answers to your questions:

Q: it sounds to me like the corporation owns all 3 rentals. Is that true?
A: No. Only Rental3 is corporate owned. The problematic rentals (Rental1 and Rental2) are personally owned and titled under my name. I bought them during my early real estate career almost a decade ago. I was a lot simpler back then.

Q: Have you considered dissolving the corporation or having the corporation file BK?
A: Since the corporate doesn't have anything to do with the problematic rentals, the corporation would not file BK.

If only the crammed down debts must be paid off in 60 months, it sounds like only Rental1 and Rental2 debts would be part of the plan. Other debts would be left as nothing ever happen, right? ... Yes, loan acceleration is scary indeed. I'll have to pull out the old notes of my house and Rental3 to analyze to see whether lenders can accelerate the loan upon knowing about bankruptcy.

**LadyInTheRed** · 01-02-2015, 12:18 PM

Just to clarify, even if you pay your home mortgage directly to the lender, it is still be part of the plan as will be all of your debts. It just won't have to paid off in full during the Chap 13 like the crammed down debts would.

I'm still confused by this statement:

Rental1 and Rental2 mortgage are personally guaranteed.

Perhaps you didn't say what you meant to say.

If only Rental3 is owned by the corporation, then I can see why the corporation wouldn't file BK. If the lender required a personal guaranty in the first place, then it may insist on a replacement guarantor. I don't know whether you can reaffirm a guaranty or whether that would be advisable or even acceptable to the lender. After a BK, you may not be a qualified guarantor.

**PeterPan** · 01-02-2015, 01:43 PM

Originally posted by LadyInTheRed View Post

I'm still confused by this statement:
Rental1 and Rental2 mortgage are personally guaranteed.

Rental1 and Rental2 are bought in the same way most home owners buy their home. I guess I shouldn't have used the word "personally guaranteed". Just about all residential loans are guaranteed by the buyers (home owners).

LadyInTheRed, thanks for responding to my post.

top Ad Widget

Announcement

How much trustee involvement during the 5 year payment period?

How much trustee involvement during the 5 year payment period?

Comment

Comment

Comment

Comment

Comment

Comment

Comment

Comment

Comment

Comment

Comment

Comment

Comment

Comment

bottom Ad Widget